Last week, political heavyweights from the UK and Japan made headlines; in the former case, UK Prime Minister Boris Johnson resigned amid a cabinet resignation crisis, while in the latter, former Japanese Prime Minister Shinzo Abe was assassinated—a shocking event for global financial markets that triggered a sudden rise in risk aversion, with funds rushing into the US dollar. Additionally, market expectations of a 75-basis-point interest rate hike by the Federal Reserve this month further fueled the strengthening of the US dollar, pushing the US Dollar Index to briefly hit a 20-year high of 107.78 during trading.
Following the strong June non-farm payroll report, profit-taking emerged, putting short-term downward pressure on the US dollar, which closed below the 107 level last Friday. In early Asian trading on Monday (July 11), the US Dollar Index rebounded after bottoming out, regaining its position above the 107 mark, currently hovering around the 107 level.
The US Labor Department's non-farm payroll data released last Friday (July 8) showed an increase of 372,000 jobs in June, with May’s new non-farm jobs revised down from 390,000 to 384,000; April’s new non-farm jobs were also revised down from 436,000 to 368,000. Significant job gains were seen in professional and business services, leisure and hospitality, and healthcare sectors.
Question One: Why is the US dollar strengthening? Two factors are responsible.
From our observations, there are mainly two factors driving the current strength of the US Dollar Index.
Factor 1: The inflation data for June released earlier by the US showed no signs of easing, fueling market expectations that the Federal Reserve will raise interest rates by another 75 basis points in July. This speculation has led investors...